Can Australian home prices keep rising?
February 1st, 2010 · Greg Atkinson · 908 Comments
Back in the 2008/2009 when home prices in parts of Europe and the United States were tumbling there were plenty of “experts” saying Australian house prices would also come crashing down. But alas the residential property market remained fairly robust during the global financial crisis and the experts who predicted a crash in property prices were wrong.
But the question we need to ask ourselves now is: can Australian home prices really keep rising?
Of course the answer to this question will depend on if we are talking about a time period of one month, one year or ten years. We also need to remember that the further we try to look ahead and forecast how house prices will perform, the less likely we are to be right. (unless we are very vague about our forecasts, a trick used by plenty of market commentators and self anointed financial gurus)
As it stands today we know that generally speaking average house prices across Australia have held up fairly well and even risen over the last coupe of years. Some luxury homes and developments have not fared so well, but the home price data appears to indicate that most home owners have come through the last few years in fairly good shape.
Many property investors however did not make it through the last few years in good shape and quite a few high flying Gold Coast property developers saw their little empires collapse similar to what happened back in the 1990′s.
So although it appears on the surface that the Australian residential property market looks bullet proof, the fact is that there have been some areas where prices have fallen and even dare I say it, crashed.
As a result a little heat has been taken out of the housing market and since many property developers have been finding the going tough, the supply of new housing has also been slowed.
But the demand for housing has held up fairly well, thanks largely to lower interest rates, continued high immigration and the money made available via the first home buyers grant.
Now if Australia were an economic island where money grew on trees then property prices would continue to rise, but what we need to take into account the following:
- that much of the money we use to fund our lives in Australia is borrowed offshore and that Australia does not control how much interest needs to be paid on this debt.
- that the RBA is focused on fighting on inflation and therefore interest rates will probably remain at current levels or creep higher this year.
- that people can only afford to pay so much for housing. (i.e. there is not an endless amount of money sloshing around)
Back in September I wrote that I thought home prices in Australia would fall by around 10% in the next 12 months and at present my short term residential property market outlook remains pretty much the same.
I am not suggesting there will be a crash in the housing market, but rather I simply don’t see how prices will keep rising in 2010 as interest rates go up and with the first home buyers grant back down to “normal levels”.
As for the long term outlook for the housing market the simple truth is that nobody has a clue. There are simply too many variables to take into account not only within the Australian economy, but across the global economy as a whole.
We have no way of knowing what measures governments may take to address problems they see with the housing market. How would a massive increase in public housing for example affect property prices? Or perhaps steps will be taken to release more land for housing and/or existing areas will be rezoned to allow higher density dwellings to be constructed?
In addition we need to be careful when we make the assumption that a rising population will support house prices because this is not entirely correct. If people moving to Australia for example cannot find good paying jobs then house prices may actually fall. People alone don’t make house prices go up, because at the end of the day prices are driven by the interaction of buyers and sellers, and the buyers need money. (plenty of it)
If Australia does not become more productive over the next decade or so then it is quite possible house prices will remain flat or even trend downwards. I am not saying this will happen, but what I am trying to highlight is that the long term trend of house prices heading upwards is not set in stone. An ever increasing population alone does not guarantee an economy will keep growing or that house prices will keep rising.
When you think about it, for Australian home prices to keep rising over say the next 10 years or so then we need to have a growing population and an economy that is able to keep growing while also creating new well-paying jobs. This might sound easy to do, but in practice it is quite tough to achieve.
Perhaps if the Chinese economy keeps growing then we have little to worry about in Australia, but there is also plenty of room for the Australian economy to contract if things don’t work out quite the way most people seem to assumed they will.
As I have written before, it has been over a decade since the last recession in Australia and many people in the workforce today with mortgages have never experienced an economic downturn.
The chances are that many of these people are also unprepared for a few lean years so the next recession in Australia could have a more severe impact on the housing market than would otherwise be the case.
Over the next 12 months or so I expect house prices to ease back (around 10-15%) and remain fairly subdued for maybe 18-24 months. I am aware that there is apparently a housing shortage (although I am not sure it is quite as large as commonly reported) but I just can’t see where the extra money will come from to keep pushing prices up.
Over the longer term (say 5 years plus) I believe it is almost impossible to make an accurate forecast, the best we can do as investors is make assumptions and adjust our outlook as conditions change. I know this does not sound particularly insightful, but it is simply the reality as I see it.
But perhaps I have everything backwards? Maybe house prices will rise in the short term and enter a period of long term decline? Or could Australia become a nation of people who prefer to rent and live without the life-long burden of a mortgage? If so how would that impact house prices?
Then again maybe prices will rise in 2010 and keep heading upwards for decades? Maybe the GFC has just spooked me a little and I am starting to see asset bubbles where they don’t exist?
Anyway I certainly don’t have all the answers so I invite readers to share with readers of this blog and myself their view of how the housing market will fare over the short and long terms and if needed, set me straight on a few things!
Over to you…..
Search terms: australian economic forcast for the next 10 years, can perth sustain property prices, property prices in perth going crazy 2013 how is this sustainable
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908 responses so far ↓
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601 Biker Pete // Apr 26, 2010 at 7:17 pm
Here’s some fun, Ned:
http://www.crackshackormansion.com/
My score? 12 / 16 ….. p*ss poor… !
602 Senator13 // Apr 26, 2010 at 7:22 pm
Hahaha, I only got 10 out of 16…
603 Ned S // Apr 26, 2010 at 7:30 pm
I got 8 out of 16 -- Remind me to steer well clear of Vancouver residential RE!
604 Ned S // Apr 26, 2010 at 7:45 pm
I think the one that most annoys me is the inability to build a granny flat in the backyard of one’s main residence and live in same whilst renting out the house without exposing oneself to CGT on that main residence which now consists of a house and a granny flat. (If one was to live elsewhere in such circumstances includind buying a campervan/Winnebago and doing a grey nomad routine [for less than 6 years in any one stint] and rent out the entire main residence [both house and granny flat], the property is CGT exempt is my understanding.)
Doubt the KHR will recommend changing that though.
But suspect I might have finally cracked an acceptable work around -- For someone in my circumstances at least. I’ve been wracking my minute mind over it for the best part of two years off and on:- Given that I only have enough assets for 5 basic properties and it’s pretty obvious that a bloke needs 5 to rent and one to live in to squeak over the line as a self funded retiree based on rents (ie 6 altogether with some risks still existing), I need that extra residence but am not at all keen on working for it. (Although Yep, a granny flat I build myself for $50k in the backyard of any one of those 5 properties and can live in without sacrificing the usual CGT exemption on an entire property which would normally be regarded as the main residence would suffice.)
I’ll talk to my favourite taxman about it tomorrow. Presumably he’ll find a flaw in my grand plan and make me feel all sad … It’s a bloody good thing we’re mates!
605 Ned S // Apr 26, 2010 at 10:07 pm
PS: Spent the middle part of today pulling down a garden shed in one neighbour’s yard -- Which was then dropped over the fence to another neighbour’s yard -- To use as fencing, chook pens … Whatever he should choose …
!
606 Biker Pete // Apr 27, 2010 at 3:31 pm
Thought I’d posted a reply, Ned… but it’s gone… Alzheimers!!
I’ll be interested to see how you get on with your workaround. We’re about to get six houses strung along our south-east boundary… and doubt that the shire will even let US build a shed.
I’m carting sand from the new rental to our orchard, to fill in bunny diggings. (Rabbit for dinner, Tamara!~)
Being absent from home, the hoppers are literally having a field day… . Nice healthy specimens, though!!
607 Ned S // Apr 27, 2010 at 5:45 pm
I just read through some crap I’m presumably expected to sign to make it easy for my SMSF to pass an audit Biker. Some of it is pure legal fiction. I’m not feeling inclined to talk to any taxman today -- Not even a mate -- On the off chance I tell him what I think of a system that results in people being asked to fib so the audits the ATO requires can be flick and tick exercises for those the ATO/SIS(?) presumably deems qualified to get paid good money for doing them.
My SMSF is pretty squeaky clean and I reckon it would stand an audit by any sane and even half-reasonable person. But the minute I knowingly sign crap to make it easy for all concerned to say that it does comply, then it definitely doesn’t comply! I knock heads with the system on occasion …
“six houses strung along our south-east boundary… and doubt that the shire will even let US build a shed” -- If the original zoning was the same, then talk to the previous owner of the land on your SE boundary maybe? He presumably knows the right party to “bribe”, how much they want and what form that bribe/”contribution” is required to take to pass muster in a country like Oz where maintaining the appearance of being ethical is important.
Talking about ethics, I see that all and sundry are howling for the WA Treasurer’s blood. He does sound like a bit of a liability -- Jeez, even this old baby boomer didn’t go around snapping chicky babes bras!
608 Ned S // Apr 27, 2010 at 6:41 pm
“Prime Minister Kevin Rudd and state leaders also announced a review into housing affordability and availability at the Council of Australian Governments meeting in April, with a view to seeing whether such factors as zoning and planning, taxation and the first home owners grant had affected the market, and possible measures to alleviate the situation.” :
http://www.smh.com.au/opinion/politics/rising-wave-of-voter-anger-over-housing-20100426-tmma.html?comments=144#comments
For pity’s sake, when I wrote to Tanya Plibersek maybe a bit under 2 years ago about Oz housing issues, she wrote back and said it was all being reviewed. Can anyone think up a decent tune to go with a song that has a chorus of:
“Kev’s a whanker,
He’s a whanker,
A whanker … Thru ‘n thru,
True bloody blue!”
609 Biker Pete // Apr 27, 2010 at 7:24 pm
As smatter a fact, I wrote to Kev this morning, Ned. Basically advised that though we were supplying the rental market with cheap, high-quality homes, we’d ‘review’ that policy if the KHR recommendations include any adverse to our plans!~
Must talk to you about your SMSF. It’s an arena we haven’t entered yet.
Buswell? Good treasurer, but he’s a punter. If you _really_ want to live dangerously, ride a motorcycle…. .
610 Ned S // Apr 27, 2010 at 7:36 pm
And yeh, I just sent an unedited copy of the above comment to both Rudd and Plibersek. Not that it will make one squat of an iota of difference I fully imagine. (Except in so far as the fact I supplied my real name and address could cause me to get busted for having stopped voting maybe?
)
Yes, I’ll tell you what I know about SMSFs Biker -- Basically very good things for those who care about their money enough to be bothered paying attention to it I think. With the advantage of being a different entity type with different rules.
Just talked to that nice little lass down me local bottleo -- She’s good fun. Gaw’d, I’m glad I’m too old to REALLY want to do anything other than chat!
611 Ned S // Apr 27, 2010 at 8:34 pm
I see a lot of things going for super Biker. There is a very minor risk Oz super funds generally could be nationalized I guess. But by then things would be in such a mess that we’d be experiencing a world of pain that one most likely isn’t able to get their head around without having lived through same. (And from what I know of those who have, life goes on -- Leastways if at least one family member has security of tenure re their digs and maybe two have a job.)
I’m pretty much forced by tax law to have some assets in super -- I expect to put about $26K (minus the 15% contrib tax) into same this year to reduce my tax rate on those dollars from 30% to 15%. With an SMSF at least to my mind leaving open the most likely/best chance/avenues for avoiding being caught in any of Kev’s infrastructure plans.
612 Ned S // Apr 27, 2010 at 9:55 pm
Me chorus was a bit off -- But I think I’ve fixed it? :
“Kev’s a whanker,
He’s a whanker,
A whanker … Thru ‘n thru,
Bloody true bloody blue!”
613 Biker Pete // Apr 28, 2010 at 12:08 am
“…we’d be experiencing a world of pain that one most likely isn’t able to get their head around…”
I think this is a probability the Crashnburn Crew really haven’t included in their Armageddon Agenda, Ned… the fact that _most_ of them would be collateral damage.
DRA is replete with links to prophetic British experts, who never saw the GFC coming and who are now utterly ursine about Australia. You’d think they’d be preoccupied endeavouring to save Mother England, but no, they’re dumping in forests abroad. Glad we’re starting to discriminate in who comes ashore…!~
614 Ned S // Apr 28, 2010 at 7:03 am
Brits cheering themselves up by looking around for anyone they can possibly imagine could end up worse off than them hey? Yes, I gather things aren’t great over there -- I spent a pleasant late Sunday afternoon with two Brits and a Canuk maybe two months back. The Canuk had discovered the joys of XXXX and was talking rather freely -- He’d obviously spent some time in Britain!
And I got an email from the missus of one of the Brit chaps afterwards noting that having now been to Oz, he figured it mightn’t be a bad place to live. If anyone knows a good argument why a bloke might want to swap Aussie citizenship for Brit citizenship, I must admit I’m yet to hear it.
As to the Armageddon scenario, where Blankfein jumps out a window and Buffett is institionalised as a raving nutter, yeh, I don’t figure I’m smart enough I can expect my finances to be looking real flash either!
I still can’t get over the gall of Rudd announcing he’s gunna have a housing review carried out. If my recollection is correct the Senate finished one of them in maybe early 2008 and figured the Henry review would shed more light on it or somesuch?
615 Anon // Apr 28, 2010 at 7:07 am
Actually the British economy is turning Ned. Economic data out of there is improving.
Not financial advice (nor any of my posts), see a financial advisor for such decisions etc.
616 Anon // Apr 28, 2010 at 7:09 am
“Here’s some fun, Ned:
http://www.crackshackormansion.com/
My score? 12 / 16 ….. p*ss poor… !
”
Score was 11/16. No idea what was going on lol.
617 Biker Pete // Apr 28, 2010 at 8:44 am
“I still can’t get over the gall of Rudd announcing he’s gunna have a housing review carried out.”
I wouldn’t spend ten minutes worrying about it, Ned.
The only thing which will ease home values is _oversupply._
In areas in which people want to live… and savvy folk invest, there’s undersupply. Our vacant rental had four enquiries… and was empty five days. Are the queues back?
618 Biker Pete // Apr 28, 2010 at 9:36 am
And further to that last comment, this item just appeared on my desktop:
http://www.watoday.com.au/wa-news/housing-shortage-getting-worse-20100428-tqhd.html
Make it better, Kev!
619 Anon // Apr 28, 2010 at 10:04 am
US Real Estate 2006:
“The California Building Industry Association (CBIA) continues to express alarm over what it calls an ongoing housing crisis in Southern California.
Alan Nevin, the association’s chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted this year, far short of the 240,000 new homes needed each year.
Southern California has been experiencing a massive population boom in recent years and it’s believed that 6 million new residents will be living in the region by 2020. The population increase, coupled with the housing shortage, has the CBIA worried that it will be increasingly difficult for first-time homebuyers to find a moderately priced unit. ”
http://www.toacorn.com/news/2006-02-09/Front_page/005.html
How critical is Californias Housing Shortage? March 2004
http://www.ppic.org/content/pubs/rb/RB_304HJRB.pdf
It looks as though when housing shortage alarms hit the mainstream newspapers this is a contrarian warning signal of an impending top in housing.
I’ll look at the Irish and UK markets…i’d bet theres housing shortage media articles near the apex of those bubbles too. I wonder what they were saying in Japan just before the bubble imploded.
Not financial advice (nor any of my posts), see a financial advisor for such decisions etc.
620 Greg Atkinson // Apr 28, 2010 at 10:40 am
Anon…interesting information thanks. I know that in Ireland they were ringing the housing shortage alarm bells as well and ended up over building. Probably happened in the UK as well.
This is the old boom/bust cycle. We always think we have a good grip on supply & demand fundamentals but actually we rarely do.
Could it happen in Oz? Of course. If the mining “boom” does not turn out quite as big as we plan then the creation of jobs would slow, thus the need for immigrants would decrease and all those lovely future housing demand numbers would be wrong.
I am not saying this will happen, but what scares me is few people in Australia even think it is a possibility!
621 Biker Pete // Apr 28, 2010 at 10:44 am
Interesting comments, Anon.
We could not find anything we’d term a bargain in California. Yes, there will always be _crap_ going cheaply in sought-after cities, as the Vancouver link shows.
We quite like San Francisco and San Diego (although our Spanish is almost non-existent); but you’re welcome to Los Angeles and the ‘beaches’ north and south of LA.
Our travels through the NH in the last decade convince us that Australian property is a bargain. We don’t believe WA has peaked… and in fact the calls we’re getting almost daily indicate rising demand here.
“I wonder what they were saying in Japan just before the bubble imploded.” Whatever it was, we probably wouldn’t understand it!
622 Greg Atkinson // Apr 28, 2010 at 11:25 am
“I wonder what they were saying in Japan just before the bubble imploded.” I guess they said what is always said just before bubbles go pop…”it’s a boom, you better buy now or else you will miss out”.
623 Anon // Apr 28, 2010 at 1:30 pm
lol @ Greg…i’ve heard that a few times already in Oz unfortunately. I do hope we are all wrong and that Oz housing wont tumble. It just wont be pretty for anyone.
Greg I was wondering what Technical Analysis software you use? I’m thinking of upgrading. Have you tried Decision Point?
http://www.decisionpoint.com/
Not financial advice (nor any of my posts), see a financial advisor for such decisions etc.
624 Biker Pete // Apr 28, 2010 at 7:27 pm
“I wonder what they were saying in Japan just before the bubble imploded.”
More likely their Prime Minister said something like:
“These Gaijins must stop buying Japanese property!!!~”
Roll on the KHR!~
(Have to sign by 5:00 pm, Monday, Ned. Got an extension!!~
)
625 Julian // Apr 28, 2010 at 8:28 pm
Hi all, I’ve really enjoyed reading this blog.
I’m not experienced in investing or finance, but know the basics. My main interest is psychology/philosophy and I have a contribution to make along those lines.
I have struggled over the last two years to determine if the Oz housing market is a bubble or supply/demand forces and the truth obviously lies somewhere in between.
Something to support the bubble argument: I think a large amount of demand can actually be classified as speculative (i.e. bubble producing). I have noticed that a big motivation for my friends buying into the highly priced market is fear. They are scared that prices will keep rising relative to incomes and they must get in quick before it’s too late and they are left behind. This fear is a kind of speculation which has a positive feedback effect on the market -- fear intensifies as prices rise.
The other element of speculation is hundreds of thousands of “mum and dad” investors buying investment properties because traditionally this has been the best way to make money.
So in summary demand is, to a large extent, made up of fear and tradition, not rational assessment of the market. I know this argument is one-sided but I think there is a speculative element on the demand side that is not often acknowledged.
626 Julian // Apr 28, 2010 at 9:24 pm
Another comment, which somewhat neutralises my previous argument is that owner-occupiers have a strong emotional motivation for buying a house (everybody wants their own home, social expectations etc etc). This is a very solid motivation and quite rational, as far as emotional motivations can be! I think this strong emotional motivation for purchasing a home actually makes demand very resilient -- people will almost do whatever it takes to satisfy this desire.
I am sick of thinking about this: emotions, motivations, markets, governments, global economies, it’s too complex to predict -- arhhhhhhhhhhhh!!!!!!!!!! I’m going to bed and buying a house in the morning.
627 Ned S // Apr 28, 2010 at 10:02 pm
Extension -- I’m pleased for ya mate!
Lot’s of snappers in all this legislation stuff -- One I’ve just picked up on SMSFs:
http://www.articlesbase.com/small-business-articles/an-smsf-member-may-appoint-their-representative-to-be-trustee-in-their-place-ato-guidance-released-2227672.html
A cynic might be tempted to suspect they make everything complex and stupid in a genuine hope a bloke will fall in a hole. But I suspect it’s way more a matter of them just being useless bloody bureaucrats …
628 Ned S // Apr 28, 2010 at 10:27 pm
The IMF reckons we are a bit overvalued I gather Anon. But also reckons there are options other than seeing a “bubble” go pop -- Namely incomes increasing (on the back of China I fully suspect) plus a bit of inflation.
It’s all down to immigration and China is my guess.
Gotta do some more reading on the China storey -- Because while the RBA reckons they are the go (with India kicking in at some point?), Greg appears to have some pretty strong reservations.
629 Ned S // Apr 28, 2010 at 11:09 pm
I’m just glad I’m not in the Sydney and Melbourne markets paying $700k plus for a hovel. Anyone who isn’t at least mildly retarded would look around for some better value elsewhere -- IMO?
And in that regard I see WA job adverts are up 93% over the last year. Whilst the rest of Oz is down 11%.
630 Greg Atkinson // Apr 29, 2010 at 7:36 am
Julian I reckon you are right about the owner-occupiers helping to support prices. That combined with the fact that you can’t walk away from a home loan (like in the U.S for example) means that owner-occupiers in Australia and unlikely to walk away from their family home unless they are really struggling financially.
That is why suggested last year only a 10% fall in prices in Australia in 2010. That call is not looking too good at the moment, but the Government is doing it’s best to help me out by changing the rules for foreign investors and the RBA is lending a hand by raising interest rates.
Ned as for the IMF, aren’t they the same mob who were praising the Irish for having wonderful economy a few years back?
631 Anon // Apr 29, 2010 at 7:56 am
Lol @ IMF predictions. No comment!
Must admit successfully used them as a contrarian indicator when investing at times. But a broken clock can be right twice a day??
House prices rise again:
The people who have bght housing have been dead right so far -- and us property bears have been dead wrong. Might take awhile for prices to unwind…more rate rises ahead?
“House prices rose 3.1 percent in the three months to March 31, from 5.3 percent in the previous quarter, APM said in an e- mailed statement. Unit prices added 0.2 percent, compared with 2.6 percent in the prior period.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXCgOqZUxOyk&pos=7
632 Greg Atkinson // Apr 29, 2010 at 8:11 am
By the way, Tokyo continues to grow as reported in the Japan Times today:
“The population of metropolitan Tokyo is estimated to have topped the 13 million mark for the first time in April, the Tokyo Metropolitan Government said Wednesday. The population has increased by 1 million this decade after surpassing 12 million in 2000.”
..and guess what? House prices still fell
By the way, this is only the metropolitan area..the population of the Greater Tokyo Area is closer to 40 million.
633 Anon // Apr 29, 2010 at 8:16 am
“Anyone who isn’t at least mildly retarded would look around for some better value elsewhere – IMO?”
I guess if you are very good at picking out value, not a bad strategy? Its weird in the US housing market many focused on which areas collapsed…but there were some areas that held their value admist the carnage. Not smart enough to be able to pick these value buys…a dangerous game if you get it wrong.
Not financial advice (nor any of my posts), see a financial advisor for such decisions etc.
634 Biker Pete // Apr 29, 2010 at 8:28 am
Julian’s comments have some validity, but my take on it is this:
* Yes, fear IS a major factor. In our case, it’s fear of other asset classes. Shares, for example, lost over half their glitter during the last crash. Property remained virtually untouched. During our lifetimes, it has always been so in both Australia and Canada.
* Fear of over-taxation. Cash-in-the-bank loses almost half its lustre, at tax time, in our case. Property has been treated relatively well in that respect.
* Fear of negative government intervention(s). Super, admittedly a vehicle, rather than an asset class in itself, is so vulnerable an asset that we may both pull ours out this year. If not this year, certainly the next. ALL of it…
When you consider the _benefits_ of Super to folk our age, THAT’s fear!!
* Tradition, yes. In our case, three generations on both sides have benefited from property investment. (On the other hand, my mother-in-law, whose father was a broker, had just one strict piece of advice for her daughter: Do NOT marry a stockbroker!!~
)
Thanks for the link, Ned. We’ll work through it… .
635 Ned S // Apr 29, 2010 at 11:22 am
Just been looking at my SMSF Investment Strategy. It contains thoughts like Whatever happens on the stock market, short of Oz losing a war or suchlike, at least a residential property in Brisbane should always be worth something!
And I can still recall feeling really twitchy about cash I had in a bank around about the time Rudd felt to guarantee bank deposits.
Hey, did you read about those poor buggers whose super funds took a trip to some Caribbean tax havens and “Regulators have been unable to find any money”:
http://www.smh.com.au/nsw/racecourse-workers-lose-savings-in-super-fraud-20100418-smn5.html
Yep, everything has its risks.
636 Biker Pete // Apr 29, 2010 at 3:18 pm
“Regulators have been unable to find any money”
Bloody criminal. I feel the same way about the idiot CEO who invested shire funds in the American $ludge… affecting our rates for decades. He moved on before we could lynch him…
Feel sorry for the poor b*stards who inherited him… !!~
My only real issues with cash are 1.) the very low returns;
2.) the high taxes; 3.) complete lack of tax concessions to offset a.) and b.)
I’m away from our main base again.
Great to be back in my favourite inve$tment patch again… fences being painted; lighting completed; aircond going in… and we’ll spend the weekend landscaping and researching SMSFs.
637 Ned S // Apr 29, 2010 at 5:57 pm
Yeh, I’m no bleeding heart socialist as you know, but the idea that 71 yos still in the workforce who’ve managed to rake up maybe $21K in super over the last 15 odd years it’s been compulsory despite the likes of Goldman removing every possible penny from them at every available opportunity, only to have it all ultimately pinched in an even more blatant fraud, sounds a bit iffy to me too.
Cash -- The Oz peso could take a whack again I suppose. But at least it is now pretty obvious that Kev has figured out that seeing his housing and banks collapse is bad joss.
A saying I just made up reckons that while your average blue chip is good for 40 years, land is forever. Like seriously, for all the entertaining press indigenous Aussies can attract, they just aren’t that dumb -- They don’t waste too much time whinging about health rights or education rights or housing rights or welfare rights or pension rights or bullion rights or blue chip stock rights -- But they do whinge about land rights!
638 Ned S // Apr 29, 2010 at 6:23 pm
Do you ever get the thought cross your mind that if the most negative of thinkers known to personkind just should have his dreams fulfilled that he reckons a bolthole up in the Andes with a few scraggy cows eating sand might tide him and his over for a good while?
639 Biker Pete // Apr 29, 2010 at 7:55 pm
“But they do whinge about land rights!
”
Know value when they see it, mate!!
“…a bolthole up in the Andes with a few scraggy cows eating sand might tide him and his over for a good while?”
Ya mean Buffalo Bill, Ned?!~
640 Ned S // Apr 29, 2010 at 8:11 pm
Yeh Biker, a chap with the initials of BB was in my mind at the time of writing.
Hot damn, I wonder how many bags of flower and bottles of rum Cap’n Phillip got charged for setting up residence east of Botany Bay’s Great Divide?
641 Biker Pete // Apr 29, 2010 at 8:42 pm
Dunno, mate. It was a coupla centuries before flower power was invented!
And Bundy took at least a century, didn’t it?!~
Knocking back a nice bottle of Shiraz, right now. Label says ‘Silkwood’ 2002. Can’t remember buying it, so it must have been a present…. and probably not from the governor. Beware of governments bearing gifts. KHR pushed back to Sunday. Why Sunday?
Do I need to fall to my knees and genuflect, I wonder???!!~
642 Ned S // Apr 29, 2010 at 8:51 pm
“Why Sunday” -- The stock markets are closed on Sunday. Give them a bit of time to contemplate reducing their 3% dumby spit to a 1.5% dumby spit perhaps?
643 Biker Pete // Apr 29, 2010 at 9:12 pm
Yeah, you’re right…
Just saw this:
“The review, by Treasury Secretary Ken Henry, is due to be published on Sunday when financial markets will be closed.”
Must be losing it in my old age!!~
644 Biker Pete // Apr 29, 2010 at 10:51 pm
Some time back, someone on DRA suggested at the rate Australian property is rising, that even if Keen is correct (that there will _eventually_ be a 40% crash) the price of Australian housing will have risen to such a level that it will easily exceed the ‘values’ he said would crash.
At the time, I remember dismissing that comment as interesting, but a little irrelevant. Considering the annual figures for Sydney (14.7%) and Melbourne (27%) we’d now have to concede that two more years of that ‘growth’ would render even a 50% crash of lesser consequence, unless one bought at the top of the market. For that reason, if you really believe there will be a 50% crash, you should stay put… and rent.
The possibility of a crash in China offers potential for a cheap holiday home abroad, however. Some of the luxury apartments in Shanghai look pretty amazing. Think we’ll go have a butchers, Ned!
645 Greg Atkinson // Apr 30, 2010 at 7:43 am
Don’t worry Biker, Keen will claim as his own any housing market correction of 20% or more
646 Biker Pete // Apr 30, 2010 at 2:02 pm
Think you’re right, Greg!~
Amazed how little ‘common knowledge’ there is about the KHR even in the building trades. Two groups of contractors working here today (lighting and aircond). None had heard of Ken Henry… .
More surprising was to meet a realtor recently who had never heard of either Steve Keen or the KHR. And this fella runs _full page_ newspaper adverts, claiming to be the city’s top real estate salesman… .
Wonder if I can ship my bike to China on an ore carrier?!~
647 Ned S // Apr 30, 2010 at 2:04 pm
I see Jeremy Grantham is still put out that the Oz housing “bubble” hasn’t popped after at least 5 years of him saying it will:
http://www.nakedcapitalism.com/2010/04/jeremy-grantham-on-bubbles.html
It’s extremely rare for me to have anything new to add to this discussion, but here’s a thought (triggered by Grantham’s comment that “family income, which is what should drive house prices”) -- With all the kiddies supposedly staying home in ma ‘n pa’s 250m2 and 300m2 mansions, is it possible Oz is seeing the concept of “family” being redefined? -- Wouldn’t that be a hoot!
648 Ned S // Apr 30, 2010 at 2:39 pm
Grantham talks about things reverting to their trend line -- Is it possible we may revert to a trend line of having maybe 30 m2 of housing per inhabitant rather than 60 m2?
649 Biker Pete // Apr 30, 2010 at 3:37 pm
“Is it possible we may revert to a trend line of having maybe 30 m2 of housing per inhabitant rather than 60 m2?”
Well, that WAS my theory, Ned. But I note that the next project is nearly _double_ the size of the one I’m completing right now.
Seriously!~ Huge house on nice block, in good area. Cost all up under $350K… .
I’d read Grantham’s stuff recently… but had no idea of the history. I note he forecasts the collapse of both UK and Australian property… but steers clear of western Canada… which makes anything in Oz look incredibly cheap.
Funnily enough, I’m bearish on UK property… . In my view it IS horribly overpriced… . I also think the V cities in BC are questionably high… .
650 Julian // Apr 30, 2010 at 8:02 pm
There is a lovely woman at my work from London. She thinks Australian house prices are quite decent compared to the UK. Even taking into account that Australia is a less advanced civilisation; as she keeps reminding me we are at least a year behind on everything LOL!
She also said something very interesting -- that grocery prices are cheaper in London and the fruit and veg is better quality!! I think Australia has really lost out on the Woolies/Coles oligopoly, unless you are a shareholder. So much for a “free market”.
Anyway Biker I’m very interested to know why you think UK property is overpriced even after their small crash? Isn’t it just supply/demand, everyone wants to work in the UK, international hub, etc etc?
651 Ned S // Apr 30, 2010 at 10:56 pm
Despite that fact that lots of Aussies may not be especially chuffed with the idea, I thought whacking up a bunch of apartments and townhouses might have been the way to get some of that “affordable housing” policy makers tell us they want to see. But there would seem to be issues with that when you read stuff like the link Biker gave at comment 622 about a two bedroom apartment in the city costing more to build than a 3 bedroom house in the boonies.
That’s got to be a bit crazy surely? I’m as sure as I can be that going to higher density living has been a time honoured way of getting more affordable housing -- Which is why we get all the NIMBY stuff about it. Wonder what’s happened to mean it is no longer a viable option? It’ll be some combination of policy maker decisions I guess.
Talking about policy makers, I’ve just noticed that Al Greenspan reckons the American housing bubble was basically the Soviet Union’s fault
:
http://www.reuters.com/article/idUSTRE62H3OO20100318
652 Ned S // May 1, 2010 at 12:42 am
Just been to the CBA homepage doing some banking -- There’s a banner with a pic that rolls past that says “Keep the music going”, and amongst the news items that roll past above that revolving banner, one that says “Affordable locations for first home buyers” -- I thought it created an interesting effect when they coincided!
PS: Keeping the music going is apparently about getting $100 worth of your favourite songs over the next 3 months when one reads the detail.
653 Ned S // May 1, 2010 at 3:05 am
“taking into account that Australia is a less advanced civilisation” -- Lots of groups have reckoned they represented the epitome of civilization’s advanced state over the eons. With quite a few even concurrently figuring that was the case I think? (Which has led to a few fairly nasty squabbles over the years.)
But letting a bit of time go under the bridge seems to have a way of challenging such thoughts?
Poor ole Brits -- My thoughts are that they were a power 100 years ago in the way that Italy/Rome was a power 2,000 years ago.
Things change and don’t necessarily change back anytime soon, if ever I guess. Still, history can and does continue to celebrate the legacy of such groups -- As to what consolation that might really be, one could ask the Greeks perhaps?
654 Biker Pete // May 1, 2010 at 8:54 am
British realty: Our last two fairly lengthy trips to the UK were nearly five years apart, Julian. The first, in 2005, was just prior to the property crash. A friend gave us a fairly detailed description of what was happening and showed us numerous examples to illustrate what he thought must happen next. These were abuses to common sense, both personal and institutional… .
During our second trip, in 2009, he was able to show that he’d been absolutely right. But, to our astonishment, homes in England and Scotland were still very, very expensive. Because we build houses every year… and buy if we can find quality cheaper than building, we have a fairly good idea of value. That used to be a narrow, parochial perspective, but it’s much wider since we have spent much longer periods abroad.
What the Engish get for their pound is far less than Aussies can easily buy for the same kind of expenditure. We can only assume it’s a population issue… that demand is higher because they have over double our population. At times it was difficult not to laugh with derision when reading the adverts on realtors’ shopfronts. The prices are ludicrous… .
Fruit and veges were OK, quality and pricewise. We’d agree that supermarket prices were a little lower for many items. Wine was surprisingly cheap if it was European… quite expensive if Australian. Restaurants and accommodation appear to have levelled off reasonably, due to the GFC… every cloud has its silver lining… .
655 Biker Pete // May 1, 2010 at 9:21 am
Greenspan blames the Russians! What next?!~
Wonder if anyone anywhere can accept his explanation?
He’d have been smarter to simply admit that corrupt US banking practices encouraged a perversion of an essentially noble goal… to get the poor into their own homes. However laudable that principle, all the low-doc, no doc NINJA practices _had_ to come unstuck. Greenspan was oblivious or perhaps criminally irresponsible in allowing toxic debt of that kind to be certified AAA and sold off to insitutional buyers.
How different is the situation in Australia?
Before we approach a bank, we prepare a comprehensive portfolio, with a dozen colour photos and every other item of supporting information including assets and liabilities. We also include a two and five year plan, to show not only where we are, but where we’re going. We were therefore fairly astonished to have Members Equity send a valuer into one of our recently-completed homes, to thoroughly check it out(!) Our banking practices have always been conservative, but that’s a wall of protection against what happened in the US, UK and U-Rope… .
656 Greg Atkinson // May 1, 2010 at 10:57 am
I know I have said it before, but in my opinion there is not much to be gained from comparing house prices across different nations. Do you get a bigger house in some parts of Oz than the U.K? Yes, but so what? Think of the location of where the homes are and what infrastructure is available. e.g. you can get on a plane in the U.K and within a few hours be in about any part of Europe, in Australia the best you can hope for is a trip to N.Z.
Comparing house prices across nations to me is the same as trying to compare a house price in a beach side suburb in Sydney with a home on the outskirts of Wagga Wagga. What exactly are people trying to compare? Do both homes have equal access to transport, hospitals, good schools, employment opportunities, broadband etc?
I recall some years ago many people from the U.K buying up properties in Spain because they got more bang for their buck and they seemed to be doing well….until the Spanish property market imploded.
657 Ned S // May 1, 2010 at 11:48 am
Greenspan’s excuse is pretty lame -- The Soviet Union fell over, so lots more workers entered the free market economy, which resulted in a “bubble” in savings becoming available for lending, and I couldn’t bring myself to force America’s borrowers to keep their snouts out of the cheap money trough. (In fact, if you look at my record, I exaccerbated the situation very significantly by colluding with our banks to up their allowed leverage levels on such loans.)
But regardless of the merits of his plea, his apparent need to lay blame is still interesting, in that the fact he feels to do it, would seem to especially highlight the point that he knows that more than any other single person in the world, he had the best available options/tools/potential influence, and thus the greatest ultimate responsibility for mitigating the effects of all and any such disturbances.
I think I’d respect him a lot more, if rather than saying Not my fault, he’d say Yes, I cocked up right royally and here’s my detailed accounting of what I did wrong and the silly thoughts that were going through my mind when I did them -- So please learn from same!
If he could bring himself to willingly give us the benefits of those insights, it’s just possible history might ultimately remember him as something more useful than the incompetant old fart he’s proved to be to date.
658 Ned S // May 1, 2010 at 11:59 am
Imagine if Gorbachev did the same as well -- What a wealth of combined experience to be mined!
659 Biker Pete // May 1, 2010 at 4:22 pm
“I recall some years ago many people from the U.K buying up properties in Spain because they got more bang for their buck and they seemed to be doing well….until the Spanish property market imploded.”
One of the many excesses my mate Nick explained back in 2005.
O the vomitous Brits we met in Spain… . Chundrama…!!~
660 Biker Pete // May 1, 2010 at 4:32 pm
“…there is not much to be gained from comparing house prices across different nations…”
Completely agree. My comments are in response to the _legions_ who do so. And your point about marketS is _not_ lost on us.
Location is a critical first, second and third rule.
Frankly, I’ve never considered Perth’s isolation to be anything but an advantage. We’ve been abroad close to forty times in the last three decades. Yes that includes much of SEA and NZ, but distance has never been a factor in deciding destination.
Comparing house prices across the world is, however, common; and equally as suspect as surmising that Australian property must fall because Ireland is in crisis… .
661 Biker Pete // May 1, 2010 at 4:39 pm
“…he’d say Yes, I cocked up right royally and here’s my detailed accounting of what I did wrong and the silly thoughts that were going through my mind when I did them…”
If he’s going to blame factors beyond his control, he might simply have blamed that American propensity to see how far the ockystrap can be stretched before it whacks one in the face.
Extremism has been a much-vaunted attribute in corporate finance in the last two decades. Maybe the key players, Greenspan included, suspected they’d all be dead before it unravelled… .
662 Ned S // May 1, 2010 at 5:33 pm
Greg’s laid out a little scenario here, that should it come to pass, would have Oz policy makers loudly proclaiming “Not my fault” too Biker:
http://www.shareswatch.com.au/blog/economy/what-might-an-australian-economic-slump-look-like/#comment-3811
663 Biker Pete // May 1, 2010 at 8:44 pm
OK, Ned. I read it, had a _major_ panic attack, followed by a nice cuppa tea*, a Bex… and a good lie down.
Then I posted a response, entirely repenting my optimism:
http://www.shareswatch.com.au/blog/economy/what-might-an-australian-economic-slump-look-like/#comment-3811
* In truth, I upended half a bottle of Arlewood Shiraz.
664 Ned S // May 2, 2010 at 1:16 am
When one starts to poke around, there certainly are some warnings being issued on China Biker. Goggle “gottliebsen china” to pick up mentions of a range of them over the last 2 months.
This is stuff on Premier Wen Jiabao saying back in March that the world risks a double-dip recession. So he isn’t letting the Yuan/USD peg go just yet.
http://business.timesonline.co.uk/tol/business/economics/article7061436.ece
Way too hard for me to say how much of all this stuff is policy makers talking their book.
665 Biker Pete // May 2, 2010 at 9:47 am
Seems Oz may be about to follow your lead, mate:
http://www.perthnow.com.au/business/super-to-drive-property-wave/story-e6frg2ru-1225860479001
666 Ned S // May 2, 2010 at 12:14 pm
There’s a lot of good reasons for me personally to be in property Biker -- Including the fact that I know I’m inclined to panic in major stock market moves and sell low -- Probably after having bought high.
But my various personal reasons aside, it should come down to what one thinks the chances are that the property they choose to buy as an investment will outperform other asset classes over time I guess. So my “faith” in buy and hold property in that respect is at least as much a reflection of my lack of faith in buy and hold stocks to do well over the next 5 or 10 years as anything thing else. (I don’t want to be actively trading stocks. And don’t feel very comfortable with the thought of giving someone else open slather to do it on my behalf -- With my retirement funds -- At my expense!
)
But good luck to those who reckon they can do such things on their own behalf.
667 Biker Pete // May 2, 2010 at 2:55 pm
Utterly agree with those sentiments, Ned.
KHR: “The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.”
Pluses and minuses here. Can you see the potential drawback… in the last two words?
668 Ned S // May 2, 2010 at 3:39 pm
Agreed Biker – It’s a negative; As could be the 1% tax on land value; And keeping super locked up until retirement age. Guess we’ll just have to do Swanny’s job for him and sift through to see what we reckon will eventually fly. And take the risks into account.
By and large it seems that the gov “response” to the KHR has pretty much been aimed at directing public attention away from the KHR? With the suggestion even being made that they want to save some of the “good” bits (like decreased tax on bank deposit interest) as an pre-election bribe. Rudd and Swan -- Thoughts like Tits and Bulls, and Pockets and Singlets, come to mind …
They’ll say they want to give everyone a chance to have a chat about it I guess.
669 Biker Pete // May 2, 2010 at 7:47 pm
The devil’s in the details, of course, but my missus figures the changes may give us _another_ $80K pa tax-free to live on in retirement; but hit us 10% higher for CGT on sale.
The intent appears to be to encourage rental home owners to _keep_ their rental homes… forever… . We just may do that.
The DRA Bears and Goldbuggers are S-P-E-W-I-N-G of course… . I’ve tried hard to console them, but the old ‘cheer-up’ trick (running a stick backwards and forwards along the bars of their cage) doesn’t appear to working this time. Any ideas?!~
670 Ned S // May 2, 2010 at 7:58 pm
“The intent appears to be to encourage rental home owners to _keep_ their rental homes… forever…” -- That was always my stated preference anyway Biker. (I’m not a trader!)
“the old ‘cheer-up’ trick (running a stick backwards and forwards along the bars of their cage) doesn’t appear to working this time” -- Didn’t work on the few times I tried it either mate; Just not a mob that gets any joy from giggling at themselves I guess?
671 Biker Pete // May 2, 2010 at 8:05 pm
Jeez, I wonder what the ASX will do at opening Tamara(?)
Whatever happens, it’s probably a blip-in-time…
672 Ned S // May 2, 2010 at 8:21 pm
They didn’t seriously expect neg gearing to be done away with did they Biker? Even the bit of minor research I did precluded that possibility.
Although my impression was they’d like to see both it and CGT concessions axed -- Anything for a cheap house! (Including Great Depression II; And WWIII if it should eventuate as a result.) Silly buggers!
673 Biker Pete // May 2, 2010 at 8:29 pm
“They didn’t seriously expect neg gearing to be done away with did they Biker?”
No question. Go figure… .
“Anything for a cheap house! (Including Great Depression II; And WWIII if it should eventuate as a result.)”
I blame Keen. Meybe _HE’s_ the Anti-Christ!!!~ Wonder if he intends to give a sermon-on-the-Mount? He tried to crack the property market with hatred, so he may yet deliver the Loathes and the Fissures… .
674 Ned S // May 2, 2010 at 8:36 pm
A 1% dumby spit should wrap it up Biker -- Nothing much there re stocks I can see that hadn’t been clearly telegraphed.
“it’s probably a blip-in-time…” -- Yep, in 2, 5 or 10 years I imagine it’ll be all different -- And hopefully better -- Comparatively at least … Ask the Greeks whether they’d prefer their hills were full of olive trees or iron ore maybe?
675 Ned S // May 2, 2010 at 8:41 pm
Keen … “Meybe _HE’s_ the Anti-Christ!!!~ ” I really, really, really don’t get to enjoy a great belly laugh all that often anymore these days Biker -- But that just gave me one! Thank you …
676 Biker Pete // May 2, 2010 at 11:07 pm
Liked your quip about the Greeks and the olives too, mate!
Really struck a chord as this year’s the best we’ve had in twenty. Our trees are loaded with the largest, shiniest, blackest olives I’ve ever seen…. . And the bloody 28s are into them in flocks. I’m not there to fend ‘em off with my cricket bat, so they’ll be hanging around all over the orchard like Christmas decorations…
Off to sign up for the next project, in the afternoon. A FHB who is still eligible for $21K (!) is after us to sell the block (26% profit) but if he doesn’t front with the deposit by 4:30 pm, he’s missed out.
You’re probably spot on with the 1%. Maybe a little higher with BHP and RIO, but who knows?!~
677 Ned S // May 3, 2010 at 8:44 am
Recommendation 14 in the KHR does seem to be (amongst other things) a shot at neg gearing on residential rental property? :
http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm
Swan confirmed the fact that he won’t be doing it:
http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/028.htm&pageID=003&min=wms&Year=&DocType=
678 Biker Pete // May 3, 2010 at 1:23 pm
Thanks for both links, Ned. Sent to the missus for her analysis.
I guess the good news is:
* No attack on NG or CGT
* Construction won’t fall over
* No need to expedite my/our Super withdrawal…
The questionable news is:
Might the mining taxes adversely affect our economy?
Will I need an FA again, to clarify our situation…
or are my accountant and my wife sufficient?
Time to start framing up and sequencing the Big Questions again!
679 Ned S // May 3, 2010 at 2:45 pm
“No attack on NG” -- Not for the forseeable future Biker; Point 4.2 here (the devilish detail) is worth reading:
http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_4.htm
Amongst other things it says “The tax advantages from borrowing to invest in a rental property, also relevant for shares, leads to investors taking on too much debt and distorts the rental property market.”
But it’s all very softly as she goes sort of stuff with him saying in Recommendation 15 “When the 40 per cent savings income discount is introduced a smooth transition should be provided to minimise any disruption that may arise. The transition to a savings income discount for net residential rental income should only be adopted following reforms to the supply of housing (Part Two Section E4 Housing affordability) and reforms to housing assistance (Section F5 Housing assistance).”
As to CGT -- He’s talking a 40% discount on 35% and 45% tax rates I guess. (In his brave new world the first $25K of an individual’s income for the year is tax free.)
And if the whole package was adopted, we’d see a 40% discount on the rental income as well.
Nothing there that greatly scares me.(Irrespective of the fact that Swan has disavowed it anyway.)
How about you and the lady?
680 Ned S // May 3, 2010 at 7:32 pm
Having seen the KHR and government’s lack of response to it, I was initially more confused regarding what to do in relation to retirement planning than before. But looking at it further, they have ruled out so much “In the interests of business and community certainty”, that, without a complete backflip (anything could happen with those yobs), it wouldn’t seem possible for them to move towards acceptance of the report in a significant way?
And it would seem that they could have misread the mood of the electorate in this -- They are certainly getting their butts kicked by just about everyone for having been so evasive. (Even now, all Swan really wants to talk about is how nice he’s been to small business so he can pinch some votes off Abbott.) While the sort of balanced, considered change Henry proposed has won a lot of support.
The Mad Monk putting himself in the position of saying he hates the key tax grab on which it all hinges (TAX THE MINERS MORE!) without wanting to say he won’t support it, doesn’t help greatly either:
http://online.wsj.com/article/BT-CO-20100502-703397.html?mod=WSJ_latestheadlines
I’m gunna take a break from it for a while -- Give the dust some time to settle. (Hopefully Spain and Ireland won’t go broke in the interim!)
PS: I see that if Britain’s Labour falls much more in the polls, they’ll be minor party.
681 Biker Pete // May 3, 2010 at 8:25 pm
Signed up for the next one, Ned. It’s the ninth we’ll build with this particular company, so they’ve thrown in a lot of impressive freebies, including raked ceilings… .
Up to my ears in landscaping. All good dirty fun!~ Not sure what I’ll do with myself if we ever stop building. Missus says she’ll take six months off again next year, now there’s no panic due to a SuperGrab.
Have a young lass interested in one of my vintage bikes… so I can hear the rumble of a new Ducati Multistrada 1200 twin-cylinder in the distance.
You were pretty much spot on with your ASX predictions, mate.
I’m watching Twiggy Forrest doing a dummy-spit on ABC2 right now!
682 Ned S // May 3, 2010 at 9:21 pm
Sounds like business as usual to me as well Biker -- Just hung up after chatting to a chap who knows a bit about tax -- His interpretation is that the KHR is great -- But that no other nation has ever gone so far before; And OUR pollies sure aren’t gunna be the leaders of the pack re world tax reform -- In case it goes bad and they look silly.
Such is life!
He thought I was gunna do a dumby spit over it? But when I said it looks great to me -- What’s the catch? -- He told me what he did. So I guess that’s that … Like I said, I’ll drop offline for a while. Got a few things to do now too. But you know my email …
683 Biker Pete // May 3, 2010 at 10:55 pm
No worries, Ned. Thanks for all the very helpful links.
We’re throwing ideas about at present, but I think we’ll stay the course.
Take care of y’self, Ned… .
684 Greg Atkinson // May 3, 2010 at 11:11 pm
The mining tax will make mining companies think of ways of getting around it. Personally I tend to go with the saying “don’t bite the hand that feeds you”.
685 Biker Pete // May 4, 2010 at 8:37 am
There’s generally a workaround, isn’t there?~
Just in case you missed this DRA contribution, Greg: ( ; )
“Comment by smallcap on 4 May 2010:
Don, I, unlike you am not a miner so have to bow to your superior knowledge on the subject. However, I would have thought that the mining industry is somewhat restricted to where it can do business, basically having to mine where the minerals are, which probably keeps us in the picture. I fondly remember from my teen years, Various British governments milking the north sea natural gas and oil cash cows They sold the stuff (10 years in advance) to the oil companies while it was still in the ground. But now, its all gone. The UK now has to rely on Russian gas for it’s power stations. This is shipped in in gas tankers. Reckon the oil and gas companies give them a discount for services rendered?
If we can’t value-add in this country (and it sadly seems that we can’t), then we need to get bang for our commodities. Lets see if the miners go away – I bet they don’t. Sometimes you have to push the envelope, because maybe, just maybe, you are selling yourself short. If you don’t find out for yourself, the mining companies are not going to tell you.
Oh, and on the economy, can I take it that we are all decided that it will belly-flop by the end of the year. I keep reading the “sell out now,” comments, have my finger on the sell button, but keep making money. It’s very confusing for a simple man.
Seriously, there has to be some form of timeframe to the ‘end of the world’ predictions. Eventually it either has to happen or you don one of Steve’s tee-shirts and go for a walk. Otherwise you may have to rename TDR the Nostradamus Chronicles. ”
Nice!
686 Greg Atkinson // May 4, 2010 at 9:10 am
Hi Biker, quite true that you have to mine where the resources are but our two biggest exports, iron ore and coal are not exactly rare earth metals.
Coal in fact is not needed as an energy source and it is pretty clear that most major economies (apart from Oz) are working out ways to generate power cost effectively without coal.
As for iron ore, there are massive reserves outside of Australia so good old supply/demand fundamentals do apply.
What we should be doing in Oz as I have written about a dozen times, is move up the value chain as the poster on DRA suggested..but actually I fear we are moving backwards in that area.
For example I was at a international marine & shipping trade show a few weeks ago in Tokyo where around 32 nations were represented but guess who wasn’t there?… Australia! Yes Australia has no exhibitors whereas one of the more popular booths was set up by a New Zealand company!
So can house prices keep rising if we fail to move up the value chain? I don’t think so, unless you believe that we can sell our iron ore and coal at any prices we like.
By the way I have talked about the dangers of relying on iron ore and coal before here in: Are we facing a peak demand scenario for Australian coal and iron ore?
687 Biker Pete // May 4, 2010 at 10:50 am
“For example I was at a international marine & shipping trade show a few weeks ago in Tokyo where around 32 nations were represented but guess who wasn’t there?… Australia! Yes Australia has no exhibitors whereas one of the more popular booths was set up by a New Zealand company!
Shame on us…. . Are we taking too much for granted?
You’ll recall the LIO fiasco I’ve mentioned previously…
“So can house prices keep rising if we fail to move up the value chain? I don’t think so, unless you believe that we can sell our iron ore and coal at any prices we like.”
But we do have much more than iron and coal, Greg.
I do agree with your take on coal and alternatives.
Aussie house prices? Who knows?~ Keen might actually turn out to be right, within RR’s lifespan. For us, there’s minimal risk. You simply can’t build high-quality homes in beach areas for the money we’re spending. Selfish view, I admit; except that our tenants love their accommodation.
We’re now engaged in what may become (at least) a $100K program to put solar electricity systems on all north-facing rental homes. Cost per house is $9500.00, but cost to us is $2500.00. Depreciation will pay that back quickly. I’d expect that after rebates our own home will cost another $20K. If we’re abroad much of the year, we’ll be making a quid from sales back-to-the-grid. From July, the amount we’ll be paid for excess elec produced in WA _doubles_…
Back to the landscaping… .
688 Greg Atkinson // May 4, 2010 at 5:32 pm
Biker indeed we have more than coal and iron ore, but they are the big money spinners and make up a significant amount of our resources exports.
Also let’s not forget we import more than we export at the moment in dollar terms, so despite high prices for commodities we are still living beyond our means.
Anyway the RBA is trying it’s best to cool the property market at the moment, I wonder if they will have any success?
689 Biker Pete // May 4, 2010 at 9:25 pm
They’ll be running for the lifeboats if all the dire predictions come to pass, Greg!~
It won’t be the first time Stevens, misreading the tea-leaves, has done a _total_ about-face… .
Sometimes wonder about the wisdom of putting banks in charge of economies. Stevens’ confidence, in the face of global trends, is probably as counter-cyclical as my own penchant for property, whatever the markets are doing. At least it’s my own money I’m playing with… .
Melbourne and Sydney probably need to cool. Our eldest is thinking of buying in Melbourne. My advice would be to wait… or to use another city as a stepping stone.
We still view the property market(s) here as incredibly cheap. Yes, we can point to _scores_ of homes for sale at _silly_ prices. We’re not buying them… and they’re not selling them, either. But house sales are thick and fast… .
690 Greg Atkinson // May 4, 2010 at 10:25 pm
Biker I reckon good property in good locations will do okay and I don’t expect the Australian economy to enter the Dark Ages. But I do think that some people who have over extended themselves in terms of taking out big mortgages might find the going tough in the years ahead.
I am not a doom and gloom sort of guy, but I do get nervous when I see a big disconnect between what the stock market is doing and how house prices are tracking. Maybe it will all come out in the wash..maybe not?
691 Biker Pete // May 5, 2010 at 10:46 am
Interesting to see WA giving an extra $4K to FHBs next year… but only for _new_ homes. That suits us, as our newie will be completed.
We’ve observed that ‘asset disconnect’ before. It is often followed by a movement from one asset class to another.
More folk our age may take their Super to property, too;
as we are, one-of-these-days.
I suspect property investors may now flock back to the marketS, encouraged by the KHR, or at least its hands-off perspective.
The time to buy was many months, ago, of course. We only _just_ scraped in on a special building deal, at $169K. Today that same house is $186K.
Around us rents are going _nuts_…. mostly up $50 pw. Crazy.
692 BP // May 8, 2010 at 9:56 am
Missus just brought me the _original_ advert for the last block we bought. We paid $134 for it, which includes free fences and a $9K landscaping package. We knew it was an amazing deal, with some lake views… but hadn’t ever scoped the _original_ 2007 advert: $178K. So the developer’s expectation fell $44K, after a one-year ‘sale’ to a 457 visa-holder fell through… !!~
693 Ned S // May 8, 2010 at 3:45 pm
A lot of the concept of what “fair” value is, has to come back to land prices Biker. I remember when I was documenting the Investment Strategy for my SMSF I “valued” the land the house was on at a 50% discount on my guestimated component of the purchase price for the house and land -- As a worst case sort of scenario -- And figured I could live with that in the unlikely event it came to it. Given that I didn’t like the thought of what the alternatives might be doing in such a scenario.
What can I say? It’s working out OK so far -- Touch wood!
And I still agree with you that inflation is a way bigger risk here than deflation. Our inflation fighting RBA is even more full of it than Elvis is reputed to have been!
Gotta go -- I’m even more under the hammer to get a bunch of stuff done now given that I couldn’t resist having a good rubberneck at all the stuff that was going down last week.
694 Anon // May 8, 2010 at 4:09 pm
This one is for you Biker:
http://3.bp.blogspot.com/_pCDyiFUv9XU/ShMqUrLvbNI/AAAAAAAAEEk/ougOqPcR2NM/s1600-h/qqxsgPopulation%2520chart.gif
lol
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
695 BP // May 9, 2010 at 9:39 am
Thanks, Anon. Enjoyed that and sent it to a friend in Canada.
Short of a nuclear war, I really can’t see population slowing. We’ve knocked out the major diseases and extended lifespans… and the great migrations south to the New World have increased.
You may recall some of the dire predictions made when steam trains first began to exceed 40 mph… including the one which warned that at greater speed blood would spurt from the noses of passengers.
Mind you, I’m not discounting the threat of rising global populations. I just think we’ll cope, using new technologies, some of whose byproducts will make feasible and economic new systems we haven’t fully developed. Our real estate agents are still scratching their heads over our decision to equip each rental with solar electricity systems. To a lesser degree, they queried why we’d bother to plumb rainwater tanks into rentals, or give tenants solar HWSs, or tinted windows to reflect heat. Automatic low-water-use retic systems and inverter-style aircon are pretty much standard in WA, now.
(All but the tinted windows and aircon attracted generous government grants… and tenants do appreciate our simple, lo-tech initiatives.)
We could contrast these innovations with New York’s excesses.
If there’s a danger to the planet, we’d contend it won’t come from opening up more of coastal Australia to new people, using improving desalination and wholescale recycling (of human waste, for example) but from giant cities whose arteries continually clog up as infrastructure costs begin to overwhelm an America-in-Deficit.
Decentralisation is starting to be actively promoted in WA.
It’s long overdue!~
696 Anon // May 9, 2010 at 2:50 pm
Yep agree Biker. Quality and longevity of life is better than it was decades ago, and presumably this will improve in the decades ahead. Population growth is assured for most countries. But it doesn’t mean we cant have stagnating periods of sub par returns unfortunately.
To be honest, when i first saw your solar panels post I couldn’t understand why you thought it was a great idea. I didn’t like solar panels as an investment in being greener and saving power. I remember doing the sums and working out its better just to put the money in the bank and use the interest to pay the electricity bill lol.
But I didn’t realise the house price may increase as a result of the installation…in addition to the associated depreciation tax deductions. Also the lure from potential renters about being in a greener home. Fully greening up ones home would obviously increase intrinsic value, especially if speculation goes gangbusters in any future green boom bubble. I can see Greg is positioning himself for a green bubble too.
On a much happier note…
.
In December 2012 its the end of the world supposedly, so the doomers will be in full force. Mayan Calander etc, you’ve probably seen the movies on it
I know i’ll be going all out short in that month, I figure I might awell go out knowing that I made a killing, before being killed. lol
I guess its analogous to people investing in Biota (flu vaccine coy) hoping that the world will be engulfed with a deadly flu strain.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
697 BP // May 9, 2010 at 6:46 pm
I have the missus busily researching the SMSF issues, Ned.
Spent the weekend acid-washing driveways, patios and pathways; putting in painted garden borders; and completing reticulation.
That’s virtually _all_ we did… .
Anon, I guess the threat of a major epidemic is always with us. The possibility of some biotech company engineering both the disease and the cure simultaneously may be too much for rabid shareholders to resist.
2012…. Terrible movie…!* It is an important year for some us.
I turn 65… and the CGT Super roller drops from $50K to $25K… No plans to sell anything, unless someone really wants to pay us what we want. Think I sold a vintage MC today, tho’… !
* Maybe the Mayans did know something. Wonder if we should be chucking a few sacrificial offerings down wells? I can think of a couple who deserve a good dunking!~
698 Ned S // May 9, 2010 at 9:53 pm
I really AM trying to make a half respectable attempt to stay out of all this chit chat Biker. Based on pure self interest -- I’ve got to get some crap sorted out re me SMSF!
But comments like “Wonder if we should be chucking a few sacrificial offerings down wells? I can think of a couple who deserve a good dunking!” make it difficult …
Yes, apart from the laugh it gave me, it could make a 2012 devotee have some second thoughts about whether his all knowing and beneficent god is all that likely to pay too much attention to what s/his Mayan mates figured s/he should do!
Sometimes I get that feeling it really is more a case of s/her having figured s/he’ll just handball the shite to us what deserve it to make the best of same???
699 Ned S // May 9, 2010 at 10:16 pm
Amongst the several problems I’ve got re me SMSF, ATO TR 2010/1 could be a bit of fun -- For anyone who has a residential property in their SMSF -- That they do a bit of work on themselves. The ATO buggers are going to be torn between do they classify such work as a contribution that they can maybe collect 15% contribution tax on (with the gross value being pretty difficult to decide) or do they get all bitter and twisted about it potentially being a way for people to overstate contributions and claim the concessional 15% tax rate on them against other income?
It’s a complex world out there with governments’ abilities to model it being rather limitted I suspect!
700 Anon // May 9, 2010 at 10:38 pm
Rudds approval rating crashes! Time to get rid of the mining super tax or start some new topic of distraction.
“According to a May 3 Essential Research poll, Rudd’s approval rating has fallen to 46%, down from 71% a year ago. The Liberals lead Labor by 51% to 49% on a “two party preferred” basis according to polling by Newspoll published in the May 4 Australian.”
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